ELLIOTT WAVE ANALYSIS - Latest Market Commentary
3rd October 2015 The build-up ahead of last Friday’s U.S. Non-farm payroll figures saw analysts agreeing consensus forecasts for gains of +203k but nothing could have prepared for the actual figure of only 142k! Furthermore, the August figure was revised lower from +173k to only +136k – a double-whammy! The implications### of a slow-down in the hiring of the labour force translates into expectations the Federal Reserve will not hike interest rates sometime before year-end, in contradiction to the remarks made by Janet Yellen only a few nights ago. This has certainly frightened the market into believing the U.S. will be affected by a slow-down in the economies of China, Emerging Markets and Europe. The S&P wobbled after the announcement with declines down to 1883.00 (futures) but this was reversed afterwards with gains back above 1909.00. Importantly, declines held above lows traded earlier last week of 1861.00 and this validates continued upside progress for the next few weeks with targets above the September high of 2011.75 (see latest charts). In Europe, the Eurostoxx 50’s low traded earlier last week at 2987.47 was also held and this confirms a larger counter-trend upswing is already in progress, balancing the preceding declines from the July highs. Some impressive percentage gains are forecast during the next several weeks. Germany’s Xetra Dax is similarly positioned to begin a multi-week counter-trend upswing. In Asia, the Shanghai Composite index shows some stabilisation last week before markets closed for the Golden Week holiday although upon reopening, we still expect a lower test before a more sustained upswing gets underway. In Australia, the ASX 200 formed an important low last August with prices holding well above since – this rally began a counter-trend advance with upside targets towards 5500+/-. In Japan, the Nikkei is positioned for a strong accelerative upswing during the next few weeks towards 19450.00+/-.
3rd October 2015 Whilst the larger-term picture remains unchanged for both the US$ index and the Euro/US$, short-term gyrations sparked by the Non-farm payrolls have extended smaller 2nd wave counter-trend corrections. In the case of the US$ index, the decline from the September high of 96.70 is likely to extend into the 95.00+/- area prior to staging a reversal. This results in equivalent upside close to the 1.1400+/- range for the Euro/US$ before turning lower again. It is important not to get distracted ###from the larger picture – multi-month expanding flat sequences for both the US$ and Euro are expected to finalise during the next weeks; and this implies much more strength for the US$ and additional weakness for the Euro once the current short-term moves have completed. Sterling has found support at the 1.5100+/- range and seems now engaged in a counter-trend rally. This should be temporary though – labelled as a ‘b’ wave within the finalising zig zag of a double sequence, wave ‘c’ declines are expected afterwards. We have added another downside objective based on the recent short-term development. Meanwhile, US$/Yen has traded below initial support at 119.04 and is currently trading at the 118.65+/- area. Although this rules out a contracting/symmetrical triangle sequence for wave ‘x’ within the ongoing double zig zag advance in progress from the August low, it still allows for additional upside in the weeks ahead if wave ‘x’ is interpreted as a single zig zag. Immediate downside support is measured to 117.67 whilst ultimate upside for this multi-week advance has been readjusted.
Bonds (Interest Rates)
3rd October 2015 In the early hours of Friday morning, news filtered through from the U.S. that the ECB central bank president, Mario Draghi was making an address to an audience in New York. He stated that growth was returning to the Eurozone after seven or eight years of stagnation. He refrained from making any direct comments related to monetary policy but said that further country-member integration would yield more scale for growth. This held benchmark long-dated yields### above the August lows as European trading began. But later, during the U.S. session, the latest announcement of Non-farm Payrolls for September caused a massive yield decline. The consensus expectations for the Non-farm Payrolls was for +203,000 increase but came in substantially lower at +142,000. The mid-summer season is often volatile, but even this figure was much less than even the most pessimistic forecasts of +180k. Furthermore, the August figure was revised lower from +173k to only +136k. The implications of a slow-down in the hiring of the labour force translates into expectations the Federal Reserve will not hike interest rates sometime before year-end, in contradiction to the remarks made by Janet Yellen only a few nights ago. The US10yr yield now threatens major support at the August low of 1.903%. The probability of breaking this level has now been heightened with the next key support at 1.798%. A break below this would signal a downtrend to new record lows as our latest update illustrates. Meanwhile in Europe, the DE10yr yield has broken similar support levels at 0.509% to confirm an extended counter-trend decline unfolding during the next couple of months.
3rd October 2015 Last Friday’s U.S. release of September’s Non-farm payrolls surprised the markets with an increase of only +142k. This led to an immediate markdown for the US$ dollar but not all commodities benefited from the weaker currency. Gold and silver were however, the main beneficiaries. Prior to the ###announcement, gold traded down to downside targets at 1104.50 whilst unfolding into a counter-trend zig zag pattern from the recent high of 1157.07 – silver also tested targets at 14.40 but importantly, holding above secondary support levels of 14.29. This proved critical once the Non-farm payroll figure was announced – prices surged higher to validate a reversal signature whilst maintaining a bullish sequence from the July/August lows. Precious metals are now set to accelerate higher during the coming week as a defined 3rd-of-3rd wave is now in motion. From now on, retracements are expected to be minimal whilst upside gains break successive overhead resistance levels to confirm the medium-term outlook as bullish. Crude oil was not one of the beneficiaries of the weak US$ dollar last Friday and is still engaged in a shorter-term counter-trend decline that began from last month’s high of 49.33. Downside targets remain towards 41.10+/- and only once achieved do we expect Crude oil to follow other commodities higher.